GIFT   OF. 


<ta*SL 


'AXATION  OF  ORGANIZED  BENEFICENCE 


DARWIN  P.  KINGSLEY 


The 

Taxation  of  Organized  Beneficence 


By  DARWIN  P.  KINGSLEY 


An  Address  to  the  Executive  Officers,  Staff  and 
Guests  of  the  Union  Central  Life,  at  the  opening  of 
its  Home  Office,  November  7,  1913,  Cincinnati,  Ohio 


\ 


s 


The 

Taxation  of  Organized  Beneficence 


STANDING  within  the  precincts  of  this  noble  structure, 
surrounded  not  only  by  the  men  who  guide  the  destinies 
of  the  Union  Central  but  also  by  the  traditions  which 
always  cluster  about  a  really  great  human  enterprise,  I 
realize  that  congratulations  from  me,  or  from  any  one,  to 
be  adequate  must  represent  something  more  than  merely 
happily  chosen  words. 

The  facts  speak  for  themselves.  Achievement  stands 
all  about  us.  Dreams  have  been  made  realities.  Ideals 
have  been  nobly  pursued  and  splendidly  attained.  Noth- 
ing that  any  of  us  says  to-day  can  adequately  describe 
the  high  purpose,  the  wise  methods,  the  patient  labors, 
and  the  moral  steadfastness  by  which  a  life  insurance 
organization  has  been  here  so  administered  that  a  great 
life  insurance  company  has  been  built  up.  That  such  an 
institution  exists  is  proof  that  a  high  purpose  has  ruled 
it,  is  proof  that  wise  methods  have  been  followed  by  it, 
and  that  patient  labor  has  marked  its  whole  existence; 
the  Company  itself  is  the  rich  reward  of  a  moral  stead- 
fastness without  which  such  success  may  not  be  achieved. 
Words,  therefore,  count  for  little,  and  for  nothing  unless 
they  are  sympathetically  uttered. 

When  I  offer,  in  the  name  of  the  Company  I  have  the 
honor  to  serve,  sincere  congratulations  upon  your  en- 
trance into  this  beautiful  Home,  I  offer  not  merely  words, 
but  an  appreciation  born  of  intimate  acquaintance  with 
similar  purposes,  methods  and  labors,  and  a  profound 
sympathy  and  daily  experience  with  a  like  moral  stead- 
fastness. 

I  rejoice  with  you  in  your  success.  I  know  what  suc- 
cess costs.  I  venerate  the  names  of  those  who  first  set 
your  feet  in  the  right  way  and  established  your  goings. 
My  veneration  is  born  of  the  pride  I  feel  in  the  great 


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names  which  adorn  the  history  of  my  own  institution. 
I  greet  most  sympathetically  those  who  to-day  manage 
your  affairs.  That  sympathy  is  born  of  experience  in 
facing  kindred  problems,  of  efforts  to  uphold  the  best 
traditions  of  a  great  business,  of  a  determination  not  to 
neglect  any  new  processes  or  new  standard  which  our 
larger  experience  demands  that  we  should  adopt. 

The  Union  Central,  like  all  life  companies  of  similar 
age,  has  passed  the  experimental  stages  and  has  a  his- 
tory and  an  experience  of  its  own.  It  has  withstood 
those  economic  crises  which,  especially  in  this  country, 
periodically  depress  business  and  disturb  the  value  of 
securities.  It  has  gained  wisdom  from  the  failures  of 
other  organizations  less  soundly  organized.  It  has 
learned  how  circumspect  a  corporation  and  the  officers 
of  a  corporation  must  be  in  order  not  to  arouse  public 
prejudice.  It  has  seen  how  necessary  it  is  to  guard 
against  the  wiles  of  those  who  thrive  upon  denunciation. 
On  the  affirmative  side,  it  has  learned  the  inestimable 
value  of  integrity  and  courage.  It  has  seen  that  those 
who  build  upon  sure  foundations  need  not  fear  the  storm ; 
that  public  opinion  in  the  long  run  will  follow  the  rules 
of  common  sense  and  fair-play. 

Life  insurance  has  now  come  to  years  of  manhood,  to 
years  of  strength,  and,  except  in  New  York  State,  to  a 
period  of  unlimited  achievement.  In  all  the  struggles 
that  have  preceded  that  condition,  the  Union  Central  has 
been  a  factor.  In  the  organized  forces  which  promise 
most  for  the  future  of  general  society,  the  Union  Cen- 
tral has  a  definite  place,  and,  in  the  great  territory  where 
it  is  located,  the  leading  place. 

If  there  were  any  really  unchangeable  and  irrevoca- 
ble canons  of  society  and  government,  I  should  be  dis- 
posed to  complete  my  congratulations  by  suggesting  that 
the  Union  Central's  problems  are  all  solved  and  its 
troubles  are  all  over.  But  unfortunately — or  perhaps  I 
should  say  fortunately — your  problems  are  not  all  solved 
and  your  troubles  are  not  all  over.  It  is  true  that  your 
organization  rests  solidly  on  accepted  tables  of  mortality 
and  conservative  assumptions  as  to  rates  of  interest ;  it  is 
true  that  your  investments  are  soundly  made;  it  is  true 


that  you  are  organizing  society  against  its  own  weakness ; 
that  you  are  daily  assembling  unrelated  and  otherwise 
hostile  money  and  impressing  it  with  a  social  efficiency 
which  the  world  as  yet  only  faintly  comprehends.  It  is 
true  that  your  work  is  entirely  creative,  that  it  is  in 
sympathy  with  every  force  that  builds  up  and  is  hostile 
to  every  factor  that  disintegrates  and  destroys.  When 
I  say  that  of  all  the  organized  factors  of  society  only  a 
few  can  truthfully  claim  to  possess  these  qualities,  I  as- 
sert only  what  every  well-informed  man  knows  to  be  a 
fact ;  and  yet  I  cannot  congratulate  you  on  that  account 
over  immunity  from  unjust  attacks  in  the  future.  In- 
deed, so  perverse  are  some  of  the  forces  of  a  democratic 
society  that  your  virtues  and  your  usefulness  and  your 
success  are  almost  certain  to  be  the  source  of  some  of 
your  gravest  problems,  the  cause  of  some  of  your  most 
serious  troubles. 

One  of  the  many  problems  that  face  you  and  me  and 
all  men  charged  with  any  considerable  responsibility  in 
this  great  field  work  is  taxation. 

If  I  proceed  now  to  discuss  problems  of  taxation 
merely,  I  shall  not  have  discussed  the  real  problem  which 
I  have  in'  mind,  and  yet  the  problem  I  have  in  mind  finds 
its  most  concrete  expression  in  terms  of  taxation.  The 
real  problem  goes  deeper.  It  is  this: 

How  shall  we  make  the  people  understand  that  a  life 
insurance  company  is  a  pure  democracy;  that  it  is  the 
most  successful  expression  of  democratic  principles  actu- 
ally at  work;  that  in  it  there  is  the  justice  which  democ- 
racy aims  to  accomplish  and  otherwise  largely  fails  to 
achieve;  that  it  is  a  brother  to  all  those  who,  from  the 
beginning  of  time,  have  sought  to  assert  the  divinity  that 
dwells  in  man,  who  have  sought  some  process  by  which 
the  sovereignty  of  the  individual  could  be  established  and 
at  the  same  time  the  immeasurable  strength  of  men  work- 
ing together  could  be  realized? 

That  this  is  what  life  insurance  really  means,  society  at 
large  does  not  begin  to  comprehend.  Indignant  over  their 
exploitation  by  the  strong  and  the  rich,  men  are  disposed 
to  classify  the  successful  life  insurance  company  along 
with  the  great  trust,  and  to  view  it  with  the  suspicion 


and  fear  with  which  they  view— and  view  not  altogether 
unjustly— accumulated  wealth  and  great  business  suc- 
cess. I  do  not  claim  that  life  insurance  is  entirely  with- 
out fault.  It  has  made  some  serious  mistakes  which  have 
given  some  color  of  justification  to  such  public  opinion. 
But  the  real  causes  which  have  led  to  the  misconceptions 
which  exist  are  to  be  found  in  the  imperfections  of  human 
nature  and  in  some  of  those  weaknesses  which  always 
have  and  always  will  be  inherent  in  a  democratic  society. 

One  great  weakness  of  a  democratic  society  is 
that  its  beneficent  forces  are  unorganized.  Selfishness  is 
organized,  politics  is  organized,  business  is  organized, 
even  crime  is  organized.  But  the  people,  through  lack 
of  organization,  frequently  are  unable  to  know  when 
and  how  and  where  they  have  really  achieved  a  triumph. 
The  politician  easily  fools  them;  business  not  infre- 
quently fools  them.  For  this  reason  they  sometimes  find 
that  the  fruits  of  an  apparent  victory  are  at  the  last 
merely  Apples  of  Sodom.  On  the  other  hand,  and  for 
the  same  reason,  they  sometimes  fail  to  recognize  a  really 
democratic  movement,  a  really  democratic  achievement. 

That  life  insurance  is  organized  beneficence,  that 
it  is  democratic,  that  its  money  is  the  money  of 
the  people,  that  its  extent  is  so  great  as  to  make 
any  existing  private  fortune  a  matter  of  relative  un- 
importance, that  its  billions  of  accumulations  are  more 
potent  than  any  other  money  assembled  for  any  pur- 
pose because  of  the  social  efficiency  with  which  they 
are  impressed,— in  short,  that  it  answers  to  a  large 
degree  the  longings  of  the  individual  for  a  definite  place 
in  the  wealth  of  the  world,  and  for  definite  power  against 
the  organized  selfishness  of  the  world,— all  these  seem  to 
be  truths  that  the  people  comprehend  with  great  difficulty. 
Indeed,  comprehension  comes  so  slowly  that  the  people 
themselves,  through  their  accredited  representatives, 
unwittingly  harass  and  handicap  and  burden  what  are 
really  their  own  best  and  dearest  achievements. 

I  can  at  this  time  touch  only  upon  one  or  two  of  the 
forms  which  this  lack  of  understanding  takes  with  regard 
to  life  insurance.  One  form  is  taxation. 

We  have,  as  a  nation,  recently  been  re-examining  the 

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bases  and  the  principles  of  taxation  in  the  matter  of  im- 
ported goods  and  of  incomes.  Congress  has  proclaimed 
its  intention  to  strike  the  shackles  from  trade  and  industry 
and  to  lift  the  burden  of  the  high  cost  of  living  from  the 
consumer,  or  at  least  from  the  poor.  There  are  shackles 
which  bind  life  insurance  and  there  is  a  high  cost  to  the 
consumer  in  this  field  which  is  the  direct  product  of  unwise 
legislation,  which  in  turn  is  a  direct  product  of  miscon- 
ception by  the  insured  themselves.  Whatever  life  insur- 
ance costs  beyond  what  it  should  is  chiefly  chargeable  now 
to  unwise  legislation. 

I  shall  not  stop  to  review  what  may  be  called  the 
shackles  pure  and  simple  which  still  exist  in  life  insurance 
regulation.  As  a  matter  of  fact,  such  shackles  do  not 
exist  outside  of  the  States  of  New  York  and  Texas,  and 
as  originally  forged  they  have  been  mostly  broken.  In 
New  York  they  remain  to-day  in  only  two  particulars: 
Limitation  on  the  volume  of  business  which  a  company 
may  legally  produce  annually;  and  limitation  on  a  com- 
pany's margins  of  safety. 

But  as  re-examination  of  processes  of  taxation  is  in 
order  let  us  review  concretely  some  facts  with  regard  to 
the  processes  by  which  life  insurance  is  now  taxed :  The 
legal  reserve  life  insurance  companies  of  the  United 
States  paid  in  1912,  in  addition  to  taxes  on  real 
estate,  nearly  $13,000,000  on  a  total  premium  income 
of  over  $666,000,000.  That  is  to  say,  for  every  $1,000 
of  capital  which  the  insured  paid  in  1912  for  the 
protection  of  their  families  through  life  insurance, 
the  state  took,  in  one  form  or  another,  about  $20. 
This  is  a  heavier  tax  than  the  property  tax  in  New 
York,  Chicago,  Philadelphia,  St.  Louis,  Boston  or  San 
Francisco.  Every  dollar 's  worth  of  property  upon  the 
security  of  which  the  companies  had  invested  their  funds 
paid  taxes  where  it  was  situated ;  but,  in  addition  to  that, 
for  the  mere  privilege  of  existing  and  doing  business,  the 
States  first  and  last  took  this  fearful  toll. 

This  is  not  only  taxation  of  capital  but  excessive  taxa- 
tion from  any  point  of  view.  It  can  perhaps  be  made 
more  impressive  if,  for  purposes  of  illustration,  we  ap- 
ply the  burden  to  some  other  phases  of  the  business. 


The  ultimate  purpose  of  life  insurance,  of  course,  is 
protection,  and  that  finds  expression  in  the  money  that  is 
finally  paid  to  the  insured  or  to  their  beneficiaries. 

If  now  we  assume  that  the  policy-holder  was  taxed 
upon  what  he  received  rather  than  upon  what  he 
paid,  we  find  that  for  every  $1,000  paid  to  policy-holders 
in  1912  the  state  exacted  in  taxes  almost  $29. 

Again,  if  we  assume  that  the  chief  benefit  of  life  in- 
surance is  the  amount  paid  in  death  claims,  then  we  find 
that  for  every  $1,000  so  paid  the  state  exacted  death 
duties  to  the  amount  of  over  $63. 

If  it  be  said  that  expenses  of  life  insurance  are  too 
high,  managements  may  very  well  retort  that  the  item  of 
state  taxes  in  every  $1,000  expenses  amounts  to  $72,  and 
unlike  ordinary  expenses  is  a  factor  entirely  beyond  their 
control. 

If  people  complain  that  dividends  are  too  small, 
that  condition  is  in  part  at  least  explained  by  taxes,  be- 
cause for  every  $1,000  paid  in  dividends  in  1912  the  com- 
panies were  obliged  to  pay  in  taxes  $140 ;  in  other  words, 
dividends  on  the  average  would  have  been  14%  higher  but 
for  the  moneys  taken  by  the  States  for  the  privilege  of 
doing  business. 

The  latest  development  in  our  various  forms  of  taxa- 
tion in  the  country  at  large  is  the  Income  Tax.  ,  This  tax 
reaches  life  insurance,  as  it  did  in  the  corporation  tax 
which  it  supersedes,  by  levying  1%  upon  net  income.  If 
the  Company  which  I  have  the  honor  to  serve  had  paid 
to  the  Federal  Government  in  1912  as  a  tax  on  its  net 
income  what  it  paid  to  the  States,  the  rate  of  taxation  on 
that  income  would  have  been  four  and  four-tenths  per 
cent.  This  rate  approximates  the  rate  levied  by  the  In- 
come Tax  on  so  much  of  private  incomes  as  exceeds  $250,- 
000  and  does  not  exceed  $500,000 ;  in  other  words,  it  equals 
the  rate  applied  by  the  existing  law  to  those  whom  some 
people  call  "the  criminal  rich". 

The  indictment  against  such  taxation  is  not  complete 
when  I  recite  merely  the  size  of  the  burden.  Another 
clause  of  the  indictment  must  tell  how  the  States  destroy 
equity  as  between  policy-holders.  Neither  in  the  rate,  in 

8 


the  amounts  paid  nor  in  the  principle  underlying  the 
system  of  taxation,  do  the  States  agree. 

Twenty-seven  States  levy  a  ta.x  upon  gross  premiums 
without  deductions. 

In  one  State  the  rate  is  six-tenths  of  1%; 

In  two  States  it  is  1% ; 

In  one  State  it  is  1.44% ; 

In  one  it  is  1.75%; 

In  two  it  is  1^/2% ; 

In  eleven  it  is  2% ; 

In  one  it  is  2y2%  on  the  first  $5,000  and  2%  on  the 
excess ; 

In  one  it  is  2%%; 

In  six  it  is  2y2%; 

And  in  one  it  is  3%. 

Nineteen  States  and  the  District  of  Columbia  levy  a 
tax  upon  premiums  after  certain  deductions : 

In  four  States  and  in  the  District  of  Columbia  the 
basis  of  the  tax  is  premiums  less  dividends ; 

.In  nine  States  it  is  premiums  less  annual  dividends; 

In  one  State  it  is  premiums  less  death  losses; 

In  one  State  it  is  premiums  less  death  losses  not  to 
exceed  25%  of  the  premiums; 

In  two  States  it  is  premiums  less  policy  claims; 

In  one  State  it  is  premiums  less  death  losses,  endow- 
ments and  commissions ; 

In  one  State  it  is  premiums  less  re-insurance  premiums 
paid  to  domestic  companies. 

In  two  States  only  are  premiums  not  taxed— Nevada 
and  Massachusetts;  but  Massachusetts  levies  a  tax  upon 
the  reserves  of  Massachusetts  policy-holders,  which  is 
the  most  indefensible  of  all  forms  of  life  insurance 
taxation. 

Among  the  lesser  taxes  imposed  are  some  of  the  fol- 
lowing in  every  State:  state  license  tax,  state  fees,  state 
and  county  license  fees,  city  and  county  taxes,  personal 
property  tax. 

9 


Here  are  nineteen  different  rates  of  taxation,  even  if 
licenses  and  fees  were  the  same  in  every  State— which  they 
are  not.  And  yet  the  United  States  are  supposed  to  be 
a  nation  in  which  the  citizens  of  each  State  are  ' '  entitled 
to  all  privileges  and  immunities  of  citizens  of  the  several 
States",  where  commercial  intercourse  between  the  citi- 
zens of  the  different  states  is  free  and  untrammeled. 

//  any  one  of  these  rates  of  taxation  is  right,  then 
eighteen  of  them  are  wrong. 

The  absurdity  and  injustice  of  the  present  situation 
will  be  illustrated  if  we  assume  that  Congress  were  leg- 
islating upon  the  subject  and  that  nineteen  different 
rates  of  taxation  were  presented  by  representatives  of 
nineteen  different  States,  and,  as  the  sponsors  of  each 
plan  insisted  upon  their  own,  Congress  should  enact 
them;  all! 

All  this,  notwithstanding  the  frequently  repeated 
statute  which  forbids  any  company  to  "make  or  permit 
any  discrimination  between  individuals  of  the  same  class 
or  of  equal  expectation  of  life,  in  the  amount  or  payment 
or  return  of  premiums  or  rates  charged  for  policies  of 
insurance,  or  in  the  dividends  or  other  benefits  payable 
thereon,  or  in  any  of  the  terms  and  conditions  of  the  pol- 
icy ".  The  first  to  violate  these  statutes  are  the  States 
that  have  passed  them.  The  companies  could  hardly  have 
any  object  in  violating  them,  and,  so  far  as  I  know,  no 
company  ever  voluntarily  did.  It  would  be  difficult,  how- 
ever, to  conceive  of  a  greater  travesty  on  justice  in  the 
matter  of  taxation  than  a  program  by  which  the  States 
in  one  statute  prohibit  discriminations  and  in  another  en- 
force a  program  which  compels  discriminations. 

We  are,  in  a  word,  faced  by  this  anomalous  condition : 
Life  insurance,  using  words  in  their  ordinary  significance, 
is  not  an  investment  at  all.  The  money  that  provides  it 
represents,  substantially  in  its  entirety,  unselfish  sacrifice ; 
and  yet,  no  capital  going  into  any  ordinary  business  en- 
terprise is  anywhere  in  this  country  taxed  as  heavily  as 
life  insurance  premiums  are  taxed. 

Taxation  is  one  of  the  oldest  problems  of  government. 
Indeed  it  lies  at  the  foundation  of  all  government.  The 
disposition  on  the  part  of  the  representatives  of  the  people 

10 


to  get  money  for  governmental  purposes  in  the  easiest, 
rather  than  in  the  right,  way  is  in  part  at  least  a  product  of 
their  resentment  against  the  encroachment  of  organized 
wealth,  against  the  inhumanity  of  organized  ability.  Re- 
sponsible life  insurance  companies  have  money ;  they  must 
have  it.  But  the  people  as  a  whole  do  not  understand  that 
necessity,  they  do  not  appreciate  its  significance,  and  they 
do  not  realize  that  that  money  is  their  money,  that  it 
is  beneficent  and  not  malevolent  in  character,  that  it  is 
really  the  fine  product  of  an  ideal  democracy.  It  is  even 
difficult  for  them  to  understand  that  the  project  itself 
should  be  encouraged ;  but  that  much  they  do  faintly  admit. 
Broadly  speaking,  the  man  in  the  street  will  generally 
say  that  life  insurance  is  a  good  thing.  Concretely  speak- 
ing, when  he  comes  face  to  face  with  the  fact  that  it  has 
great  accumulations  of  money,  he  acts  as  though  he 
thought  it  were  a  bad  thing. 

And  yet,  I  thoroughly  believe  that  we  are  making 
progress.  There  are  two  principal  reasons  why  I  think 
so;  the  first  is  that  the  day  of  strike  legislation  is  gone 
and  gone  forever.  This  dates  from  the  moral  upheaval 
which  perhaps  found  its  most  definite  form  in  the  insur- 
ance investigation  in  the  State  of  New  York  in  1905-6.  It 
is  easy  to  be  wise  after  the  event,  easy  now  to  condemn  the 
men  who,  in  most  instances  at  least,  dickered  with  the 
blackmailing  legislator  from  the  best  of  motives  and 
from  a  desire  to  protect  the  interests  of  their  policy- 
holders  ;  but  that  condition  has  passed,  passed  not  only 
for  life  insurance,  but,  as  I  see  it,  for  all  corporations. 
The  second  reason  is  that  when  the  Income  Tax  was 
under  discussion  in  Congress,  genuine  progress  was 
made.  The  case  was  presented  as  it  probably  was  never 
presented  before  to  any  legislative  body  in  this  country. 
The  result  is  that  the  tax  exacted  from  life  insurance 
companies  under  the  Corporation  Tax  law  will  be  ma- 
terially reduced  under  the  existing  Income  Tax  law. 
That  is  progress ;  but  no  inconsiderable  progress  has  been 
made  by  the  several  States  as  well. 

Twelve  States,  within  seven  years,  have  reduced  tax- 
ation on  life  insurance  by  percentages  varying  from  one- 
tenth  of  one  per  cent,  in  Colorado,  to  one  per  cent,  in 

11 


Rhode  Island.  In  the  same  period  thirteen  States  have 
increased  taxation.  While,  therefore,  the  States,  as  a 
whole,  appear  not  to  have  made  progress,  as  a  matter  of 
fact  they  have,  because  prior  to  seven  years  ago  no  State 
ever  made  any  reduction  under  any  circumstances.  That 
within  seven  years  twelve  States  should  have  made  re- 
ductions is  significant,  and  is  rendered  more  significant 
by  the  recent  action  of  the  Federal  Congress. 

But  the  misunderstanding  still  exists.  That  Con- 
gressmen and  Senators  fail  to  understand  the  part  that 
life  insurance  plays  in  the  economy  of  the  state  is  shown 
in  the  text  of  the  Income  Tax  law  as  it  now  stands,  and 
was  strikingly  shown  by  the  measure  in  its  first  draft. 
It  is  hardly  worth  while  now  to  discuss  the  provisions 
of  the  bill  as  originally  presented;  it  is  enough  to  say 
that  into  that  first  draft  some  enemy  of  responsible  life 
insurance  had  injected  an  unusual  amount  of  venom. 
Who  that  enemy  was  I  do  not  know,  although  he  prob- 
ably was  not  a  member  of  either  House.  But  even  now 
the  bill  clearly  shows  this  lack  of  understanding,  this 
fear  of  accumulated  money,  this  disposition  to  put  a 
penalty  upon  success. 

The  bill,  for  example,  exempts  all  fraternal,  bene- 
ficial and  religious  orders.  Why?  Ostensibly  because 
they  are  mutual.  But  is  that  the  real  reason?  They 
are  no  more  mutual  than  certain  well-known  life 
companies,  and  broadly  speaking  no  more  mutual  than 
the  so-called  stock  companies.  But  they  accumulate 
little  money,  they  present  the  plea  of  poverty;  the 
successful  companies  accumulate  money  and  do  not  pre- 
sent the  plea  of  poverty.  It  is  true  that  these  orders  are 
unscientifically  founded,  that  they  are  to  a  large  degree 
irresponsible,  that  their  contracts  cannot  be  depended 
on,  that  their  record  through  a  period  of  time  is  one  of 
failure  and  financial  default,  social  inefficiency  and  gen- 
eral incompetence;  but  they  have  the  seeming  virtue  of 
poverty.  On  the  other  hand,  it  is  true  that  the  irresponsi- 
ble life  companies  are  dependable,  that  their  contracts 
are  as  certain  as  anything  in  human  society,  that  what 
they  agree  to  do  they  do,  and  the  extent  of  what  they  be- 
neficently do  is  almost  beyond  calculation ;  but  in  doing  it 

12 


and  in  order  that  they  may  do  it,  they  commit  the  offence— 
or  what  is  seemingly  an  offence— of  having  large  accumu- 
lations of  money.  Moreover  they  never  make  the  plea  of 
poverty.  So  the  inefficient  and  the  irresponsible  go  mi- 
taxed;  the  efficient  and  the  responsible  are  taxed.  The 
feeble  attempt  at  democracy  is  encouraged;  the  effective 
achievement  of  real  democracy  is  discouraged. 

And  yet  I  insist  that  we  have  progressed.  During  the 
recent  discussion  of  the  Income  Tax  law  Congress  really 
responded  to  the  plea  of  the  companies.  Most  of  us  pre- 
sented arguments;  which  arguments  went  home  it  is  not 
easy  to  say.  That  some  of  them  went  home  is  certain. 
It  may  not  be  out  of  order  for  me  to  repeat  in  substance 
some  of  the  arguments  which  I  used  with  the  Chairman 
of  the  Finance  Committee  of  the  Senate,  and,  so  far  as  I 
was  allowed,  with  the  Sub-Committee  of  that  body. 

I  called  the  Committee's  attention  to  the  socially 
inefficient,  what  we  call  the  dependent  class,  and  reviewed 
some  of  the  causes  which  constantly  swell  the  ranks  of  that 
class.  That  one  of  the  great  problems  confronting  every 
statesman  is  how  to  provide  through  taxation  for  the  sup- 
port of  this  class  was  a  matter  that  I  did  not  need  to 
emphasize.  My  plea  for  life  insurance  was  that  beyond 
every  other  organized  force  in  human  society  it  helps  the 
state  and  aids  the  statesman  by  keeping  people  out  of  the 
dependent  class;  and  if  we  can  successfully  establish  a 
social  program  which  keeps  people  from  becoming  de- 
pendent, a  great  problem  in  statecraft  will  speedily  be- 
come simplified.  We  pay  to  war  pensioners  over  $165,- 
000,000  a  year,  every  dollar  of  which  is  raised  by  taxation. 
The  life  companies  pay  twice  that  sum  annually  in  cash  to 
beneficiaries  and  policy-holders,  every  dollar  of  which  is 
raised  by  private  taxation.  Pensions  are  remedial.  Life 
insurance  is  preventive.  Pensions  are  the  price  the  people 
pay  in  order  to  soften  the  pitiful  after  effects  of  a  con- 
flict too  hideous  to  be  ameliorated  when  in  progress. 
The  proceeds  of  life  insurance  are  provided  by  the  people 
to  protect  the  defenceless,  to  educate  the  young,  to  open 
the  door  of  opportunity.  But  it  is  a  tax,  and  to  tax  it  is 
to  commit  the  economic  barbarism  of  levying  a  tax  on 
a  tax. 

13 


This  was  the  argument  which  I  sought  to  drive  home. 
It  seems  to  me  it  is  the  consideration  which  must  appeal  to 
every  intelligent  statesman.  If  that  be  a  fact,  if  life  in- 
surance in  the  great  interplay  of  the  forces  involved  in 
our  sociology  is  direct,  powerful  and  efficient  in  keeping 
people  out  of  the  dependent  class,  should  it,  beyond  the 
cost  of  administration,  be  taxed  at  all!  Should  it  not 
rather  be  encouraged— encouraged  as  an  enterprise  which 
in  the  long  run  solves  the  problem  of  taxation  by  reducing 
the  burdens  on  society  which  ultimately  find  expression 
in  terms  of  taxation? 

In  knowledge  of  the  economic  meaning  and  value  of 
life  insurance,  we  are  far  behind  most  of  the  enlightened 
countries  of  the  world.  I  happen  to  be  associated  with  a 
company  which  does  business  with  substantially  all  the 
civilized  countries  of  the  globe.  In  only  a  few  are  we 
taxed  in  the  same  way  that  we  are  taxed  in  the  United 
States.  I  refrain  from  naming  those  countries  because  the 
catalogue  might  appear  invidious.  In  most  of  the  great 
countries  of  Europe,  whenever  a  tax  is  laid  upon  pre- 
miums it  is  assessed  directly  against  the  policy-holder  and 
turned  over  to  the  government.  This  has  at  least  the 
virtue  of  directness  and  the  policy-holder  knows  what  the 
government  is  doing.  A  great  objection  to  our  system 
is  its  indirection.  Few  policy-holders  know  that  they  are 
being  mulcted  by  the  government.  In  France,  Spain, 
Denmark,  Germany  and  Russia,  the  premium  tax  is  for 
the  maintenance  of  the  Insurance  Department  and  sub- 
stantially nothing  more.  In  Great  Britain  the  tax  that  the 
company  pays  is  about  one-fourteenth  of  the  average 
rate  in  the  United  States.  In  Germany  the  rate  is  about 
one-twentieth  of  the  rate  exacted  in  the  United  States. 

But  that  is  not  the  whole  story.  In  Great  Britain  and 
Germany  the  government  not  only  refrains  from  laying 
more  than  a  nominal  tax  upon  life  insurance  when  volun- 
tarily taken,  but  they  compel  certain  classes  to  insure 
against  death,  accidents  and  sickness,  and  provide  at  the 
public  charge  for  old  age  pensions.  The  cost  of  this  is 
assessed  partly  on  the  insured,  partly  upon  the  employer, 
and  partly  upon  public  funds.  The  attitude  of  these  gov- 
ernments toward  the  idea  of  life  insurance  is  so  far  in 

14 


advance  of  the  attitude  maintained  by  our  various  legis- 
latures that  the  contrast  is  painful.  They  have  learned 
what  we  must  learn ;  they  have  learned  under  autocratic 
forms  of  government  what  we  are  learning  very  slowly 
under  a  democratic  form  of  government. 

I  have  said  that  we  are  making  progress.  I  wish  I 
could  say  that  we  shall  ultimately  get  justice  under  the 
supervision  to  which  all  insurance  is  now  subjected. 
What  would  the  attainment  of  justice  in  taxation  in- 
volve? It  would  mean  that  forty-eight  separate  State 
legislatures  and  the  legislatures  of  all  the  Territories,  as 
well  as  the  Congress  of  the  United  States,  must  reduce 
taxation  on  insurance  of  all  kinds  to  a  basis  which  would 
represent  merely  the  cost  of  efficient  state  administration. 
It  would  mean  the  surrender  of  over  $16,000,000  in  annual 
revenue.  Some  of  you  may  believe  that  can  be  done;  I 
am  frank  to  say  that  I  do  not. 

And  yet  I  believe  we  shall  ultimately  get  justice. 
Europe  has  learned  the  lesson;  but  the  people  did  not 
learn  the  lesson  and  then  enforce  it;  the  lesson  was  first 
learned  by  authority.  The  value  of  life  insurance  was 
first  appreciated  in  Europe  and  is  being  imposed  on  the 
people,  by  authority.  The  one  great  authority  in  the 
United  States  which  can  enforce  justice  is  the  Federal 
Supreme  Court. 

That  Court  went  wrong  economically  in  1869  in 
the  case  of  Paul  vs.  Virginia.  It  has  generally  been 
assumed,  in  that  case,  and  in  some  subsequent  cases  where 
the  doctrine  of  that  case  was  reaffirmed,  that  the  Court 
irrevocably  declared  insurance  in  all  its  forms  and  how- 
ever practiced  not  to  be  commerce.  The  language  used 
in  some  later  decisions,  however,  implies  that  the  de- 
cision then  made  applied  only  to  insurance  as  ordinarily 
practiced,  and  later  writers  have  repeatedly  intimated 
that  in  the  case  of  Paul  vs.  Virginia  the  Supreme  Court 
has  not  disposed  of  the  whole  subject  of  insurance  nor 
settled  the  question  as  to  whether  or  not  it  is  commerce 
as  practiced  now,  especially  in  life  insurance.  The  prac- 
tical effect  of  that  decision,  however,  was  to  leave  the 
whole  matter  to  the  tender  mercies  of  the  States  and  they 
are  taking  out  of  insurance  as  a  whole  annually  about 

15 


$17,500,000.  To  expect  the  States  voluntarily  to  give 
that  up  is  to  expect  too  much.  You  might  as  well  expect 
the  beneficiary  of  a  monopoly  voluntarily  to  come  for- 
ward and  renounce  his  privileges.  Human  nature  is 
not  made  that  way. 

What  the  Supreme  Court  of  the  United  States  may  do 
when  insurance  and  especially  life  insurance  as  it  is  now 
practiced  is  fully  presented  and  discussed,  is  another 
matter.  Good  lawyers  believe  that  if  the  Supreme  Court 
should  enter  a  decree  declaring  that  insurance  and  espe- 
cially life  insurance  as  now  practiced  is  commerce,  it 
would  simply  be  recognizing  what  has  always  been  true, 
and  would  not  be  reversing  the  controlling  case  of  Paul 
vs.  Virginia.  The  effect  of  such  an  opinion  would  be 
magical.  I  firmly  believe  that  sooner  or  later  such  an 
opinion  must  be  rendered. 

When  that  time  comes  not  only  will  the  great  body  of 
this  taxation  fall  away,  but  an  opportunity  will  be  created 
for  the  expansion  of  a  great  democratic  idea,  one  which 
applies  the  principles  of  democracy  to  labor  and  the 
products  of  labor,  to  society  and  the  problems  of  society, 
as  effectually  as  manhood  suffrage,  in  theory  at  least,  en- 
forces the  rights  of  humanity  in  the  processes  of  a  demo- 
cratic government.  Through  the  expansion  of  that  idea, 
under  the  control  of  one  central  authority  as  against  some 
fifty  authorities  which  now  control,  we  shall  hasten  enor- 
mously the  time  when  the  people  will  understand  that 
a  life  insurance  company  is  indeed  a  pure  democracy, 
that  it  is  a  brother  to  all  who  have  long  sought  some  pro- 
cess bv  which  the  sovereignty  of  the  individual  may  be 
established,  and  at  the  same  time  the  immeasurable 
strength  of  men  working  together  realized. 


14  DAY  USE 

RETURN  TO  DESK  FROM  WHICH  BORROWED 

LOAN  DEPT. 

This  book  is  due  on  the  last  date  stamped  below,  or 

on  the  date  to  which  renewed. 
Renewed  books  are  subject  to  immediate  recall. 


7Aug'57JZ 


29  1957 
I  AU«'58JM 


General  Library 

University  of  California 

Berkeley 


LD  21-100m-6,'56 
(B9311slO)476 


YC  23335 


383370 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


